Exemption on repatriation

Special exemption for seven successive years is available to a PIO or an NRI repatriating to India with the intention of permanently residing in India. The exemption is available on the following assets:

Moneys brought to India (including any balance in the NRE account).

Assets: Any asset acquired by sending money from a foreign country within one year immediately preceding the date of return to India.

Any asset acquired after arrival in India out of money or assets brought in India.

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Double tax avoidance agreements (DTAA)

The government of India has entered into DTAA or tax treaties with several countries to safeguard taxpayers against double taxation.

Under the DTAA, the income of an NRI or a PIO is either only taxed in one of the two countries (i.e., it is exempt from tax in one country) or in both countries, but the country of residence allows credit of the taxes paid in the other country.

Sometimes, due to tax-rate reductions under the domestic law domestic rates become more favourable to NRIs or PIOs. Since the object of tax treaties is to benefit NRIs or PIOs, they can, under such circumstances , be assessed either according to the provisions of the treaty or the domestic law.

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The Direct Tax Code and its impact

The government of India has proposed a new direct tax law that is likely to be effective from April 1, 2012. Among the key personal tax proposals likely to impact include wealth-tax .

The Direct Tax Code (DTC) has extended the levy of wealth tax on assets located worldwide (i.e. global assets) to all residents , whether Indian or foreign citizens. Under the existing provisions, foreign citizens even on becoming resident in India were not liable to wealth tax on assets outside India.

This change may have repercussions for PIOs visiting India and qualifying as residents during the relevant financial year, as they would potentially be liable to pay wealth-tax on worldwide assets, since there is no safe harbor on the taxation of worldwide asset base as in case of income taxation for first-time residents (i.e. total stay less than the cumulative presence of 730 days as in preceding seven years).

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Definition of assets for wealth-tax purposes expanded

The definition of assets for wealth-tax purposes has been expanded to include bank deposits outside India, any interest in a foreign trust or any other body outside India (whether incorporated or not), helicopter, archaeological collections, drawings, painting, sculptures, or any other work of art, watch (value in excess of Rs 50,000) and any equity or preference shares held by a resident in controlled financial corporations.

Wealth-tax will be levied at 1% subject to the basic exemption of Rs 10,000,000 vs Rs 3,000,000 currently.
DTC has introduced the concept of tax residency certificate (TRC).

It provides that an individual shall not be entitled to claim relief under the provisions of the DTAA unless a certificate of being a resident in the other country is obtained from the tax authority of that country, in such form as may be prescribed by the tax authorities.